Technology Tales

Operating conditions improve in December at quickest pace for four months - Caixin China General Manufacturing PMI

Steel News - Published on Wed, 03 Jan 2018

Operating conditions improve in December at quickest pace for four months - Caixin China General Manufacturing PMI

Operating conditions improve in December at quickest pace for four months - Caixin China General Manufacturing PMI

The headline PMI pointed to a stronger improvement in Chinese manufacturing operating conditions at the end of 2017. Latest data highlighted faster growth of output, total new work and export sales. Greater production led to a further rise in buying activity, with the rate of growth quickening to a four-month high. At the same time, capacity pressures continued to build, with backlogs rising amid a further decline in workforce numbers (albeit marginal). Inflationary pressures remained elevated, with input costs rising sharply and prices charged increasing at a solid pace. Optimism towards the business outlook picked up slightly from November's joint-record low, but remained weak in the context of historical data. The seasonally adjusted Purchasing Managers Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, posted 51.5 in December, up from 50.8 in November, to signal a further improvement in the health of the sector. Though modest, the rate of strengthening was the highest seen for four months.

Manufacturing production continued to increase across China at the end of 2017. Notably, the rate of expansion quickened to a three-month record. Improved sales and stronger underlying market demand were cited as key sources of growth in December. Furthermore, total new orders expanded at the steepest pace since August, with export sales also rising at a faster pace at the end of the year.
Despite stronger increases in output and new work, manufacturers continued to shed staff in December. That said, the rate of job losses was the weakest seen for nine months and marginal. Nonetheless, lower staff numbers contributed to another rise in outstanding business, with the rate of accumulation quickening slightly since November.

Higher production prompted firms to raise their buying activity for the seventh month running. Moreover, the rate of growth was the fastest seen since August. However, stock shortages at suppliers and delays linked to environmental inspections led to a further leng thening of average delivery times.

Firms commented on using existing inventories of finished items to satisfy new orders, which led to a slight reduction in inventories of finished goods. Stocks of purchases also fell in December, albeit marginally.

Average input costs continued to rise sharply, despite the rate of inflation softening to a four-month low. Anecdotal evidence indicated that higher costs for a variety of raw materials drove up cost burdens. Consequently, firms increased their selling prices solidly.

Sentiment towards the 12-month business outlook picked up slightly from November’s joint-record low, but remained well below the historical series average. According to panellists, forecasts of relatively subdued client demand and changes to national policies had dampened confidence at the end of 2017.

Commenting on the China General Manufacturing PMI™ data, Dr Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said “The Caixin China General Manufacturing Purchasing Managers’ Index rose to 51.5 in December, the highest since August. Stronger increases in both output and new orders were seen in December compared to the previous month. Growth in input prices eased to a four-month low, while growth in output prices slowed marginally. Stocks of finished goods shrank again in December, and stocks of purchases declined slightly.Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected. However, we should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing.”